Understanding the Irish Banking Crisis

Abstract

The financial crisis that hit Ireland in 2008 was a severe event that will have a lasting impact on the entire population. This was not a unique event. While the scale of the collapse is significant, there are many parallels with other global financial failures. The purpose of this study is to understand how a system of banking can continue to repeat seemingly systemic collapse. The study reveals that one difficulty compounding the financial sector is the failure to correctly diagnose bank crises. This failure results in the misapplication of corrective policy treatment. There are two types of bank failure, a classic and a secondary failure. Secondary failures are caused mainly by external macroeconomic events that management are unable to control. Classic failures are caused by internal events such as reckless lending. Classic failures are typically the product of banks that lack organisational control and accountability. The research highlights a structural deficiency in the existing architecture of banking. This deficiency creates an agency problem as bank executives are not held accountable for poor management, and supported by government during catastrophic failure. This weak structural systems fosters an autocratic management style. The effects of external conditions such as booming property market and deregulation, further creates an environment where excessive and unsustainable growth leads to crisis. This study uses a combination of qualitative and quantitative research.